INTERVIEW Korean economy expected to bottom out in 1st half

Finance Minister Hong Nam-ki speaks during an interview with The Korea Times at the Government Complex in Gwanghwamun, Seoul, Jan. 10. Korea Times photo by Shim Hyun-chul

By Lee Kyung-min

• Published Jan 19, 2020 4:45 PM KST
• Updated Jan 19, 2020 7:55 PM KST

Minister Hong vows to push for inclusive growth

By Lee Kyung-min

The Korean economy will show clear signs of rebound in the first half, in what many hopes to be the beginning of a much-awaited recovery after an undoubtedly tough year of 2019, the country's top economic policymaker said Monday.

“The economy will see improvements and the growth rate will bounce back in 2020,” Finance Minister Hong Nam-ki said in an interview with The Korea Times at the government complex in Gwanghwamun, Seoul, Jan. 10.

“Major economic indicators will see substantial improvements from a year earlier and the chipmaking industry, accounting for over one-fifth of the country's export, will see a major rebound on the back of the expected supply glut ease. This together with fiscal and monetary policy as well as the government's firm resolve to revitalize the economy has led us to set the growth rate at 2.4 percent in 2020.”

The assessment is more upbeat than those made earlier by many international organizations and local think tanks, most of whose estimated growth at between 2.2 percent and 2.3 percent.

“We are fully aware of the growth outlook estimates. We view the 2.4 percent growth rate is achievable as we have taken into account all assessments available,” he added.

Hong, who took office in December 2018, remains cautious against pinpointing when Korea hit the trough in the economic cycle, while acknowledging that the Asia's fourth-largest economy experienced a downturn in 2019 mostly due to a sharper-than-expected drop in corporate investment and exports.

“It is of public knowledge that the economy peaked in September 2017 and has since been on a downward path. We would not seek to identify which month in a year was the lowest point of the economic cycle, but we are sure that this year will be better than last.”

Downside risks

Unsubdued global and domestic uncertainties will remain the biggest downside risks to Korea's export-reliant economy, he said.

Among them are unforeseeable negative global developments, over which Korea has no control. The recent U.S.-Iran conflict is a case in point.

“Korea experienced fluctuations in the financial market including foreign exchange rates and oil prices, which could entail far-reaching repercussions in the real economy. The figures returned to normal about a week after the Jan. 3 U.S. airstrike. But such a negative development is something that could have a substantial impact on the economy, a reason why we monitor and follow them very closely.”

The drawn-out U.S.-China trade feud coupled with China's slow growth, in his view, will be of most concern.

“The U.S. and China are the top two trading partners of Korea whose economy is considerably tied to China's economic growth. Despite the Phase 1 deal between the two countries, uncertainties remain.”

On the domestic front, economic recovery will hinge on whether corporate investment sentiment picks up.

“The government is well prepared to implement an effective policy mix ― a combination of fiscal and monetary policy to best help economic growth. We expect the private sector will make domestic investments which would then lead to job creation and an export rebound, but if business pessimism persists, it will inevitably become a major downside risk.”

Inclusive, sustainable growth

The 61-year-old minister, who concurrently serves as deputy prime minister, made it clear that the Moon administration will push ahead with its controversial income-led growth policies, aimed at ensuring inclusive and sustainable growth, in the face of fierce opposition from the opposition party and businesses.

Hong said economic growth measured by monthly or quarterly reports on indices involving jobs, exports and investment, tends to focus on short-term performances, in what oftentimes perpetuates the short-sightedness in the minds of the public at large.

However, policymaking in his view should consider how the country will grow over the next five to 10 years, and whether it will be moving in the right direction.

He stressed that more considerate, long-term planning is crucial given the country will not be able to grow at a rate of up to 8 percent a year, which it did in 1970s and 80s driven by large conglomerates and manufacturing.

“Korea will never be able to grow at such a rapid pace again, and we have reached a point where we should ask what good an advanced economy would be if it is defined by extreme polarization between the haves and the have-nots with the so-called trickle-down theory essentially defunct. We should not let ourselves become people feeling indifferent and insensitive to growing social and economic inequality,” he said.

The government should therefore, he pointed out, draw up policies not to boost short-term performances but to maintain sustainability, a firm basis for inclusive growth.

The specifics include four stages.

First, creating jobs, thereby giving an economically neglected group of people a sense of purpose and dignity.

The same goal can be achieved by the second plan ― increasing wages for the low-income earners, mostly minimum wage workers.

The third stage is strengthening the social safety net for the elderly, many of whom have no stable source of income after retirement and therefore fall steeply into poverty. The social welfare programs can also be made available to those who experience the sudden loss of a job.

The last stage is reducing living expenses by giving financial support to the public with education, housing, medical services and telecommunication fees, the essential costs to maintain a decent living.

Hong believes that this helps reduce expenses for the middle to lower-middle income earners.

These, he stressed, are all important components of the inclusive growth, part of which includes “income-led growth,” which he said have been largely mischaracterized as anti-business, pro-labor policies.

“We have made various revisions to unburden the businesses that long expressed hardship and frustration following the shorter workweek mandate and hourly minimum wage hikes. The government is and will continue to be open to making changes, but outright abolishment of the mandate is not something anyone with full understanding about the initiative would demand,” he said.

Hong said the two issues are only a small part of the income-led growth initiative, and highlighting only them while refusing to recognize the broader policy objectives is regrettable.

“There will be no true growth without inclusive growth, a global initiative among members of the Organization for Economic Cooperation and Development, a group of economically advanced economies. With Korea's per capita gross national income having topped $30,000, we have to address how the country will be able to best achieve the greater good.”